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Approval received for UK ILS regulations

November 29, 2017

A UK government cross-party parliamentary committee approved the risk transformation regulations 2017 and the risk transformation (tax) regulations 2017, which will make up the UK ILS regulatory regime.

However, the proposals did raise some questions.

In the meeting of the Fifth Delegated Legislation Committee, Jonathan Reynolds Labour Co-operative MP and shadow economic secretary to the treasury, said: “We should always bear in mind the potential risks around securities markets, with the ILS being particularly affected during the global financial crisis.”

Reynolds suggested that this package of measures was announced in the 2015 budget, a long time ago in political terms.

He commented: “Now we face an entirely different landscape due to our exit from the EU. I do find it odd that the government is taking this approach to ensure the London market is equipped to compete globally, while ignoring the elephant in the room, which is that a no deal Brexit would cut off the industry at its knees.”

However, Stephen Barclay Conservative MP and economic secretary to the Treasury, replied to the shadow minister stating: “It is Brexit that reinforces the benefit of increasing the UK’s influence over what is already an established part of the market … one that is currently off shore. Bringing it within the UK will give UK regulators more influence over this market.”

Over the past two years, the UK Treasury has worked with the Prudential Regulation Authority, the Financial Conduct Authority and the London Market Group’s ILS taskforce to develop the UK’s ILS regulations.

The regulations allow for insurance and reinsurance firms to transfer risk to the capital markets, meaning that risk can be managed more effectively for businesses and consumers.

William Hogarth at Clyde & Co said: “The news that the regulations have been approved is a great step forward. London is in a strong position when it comes to attracting ILS business as it is home to some of the world’s best and brightest insurance talent, whose knowledge, experience and ability to innovate is unparalleled,”

He added: “London also has a thriving community of brokers too and can draw on a huge amount of capital.

“The protected cell company model for ILS is attractive in that it allows investors to ring-fence risk; with each individual cell of a protected cell company effectively operating like a separate insurance vehicle. Each cell is fully funded for the risk or portfolio of risks for which it is designed but is isolated from other cells within the protected cell company, ensuring there is no cross-contamination.”

However, Hogarth went on the outline the hurdles for potential investors to overcome.

He said: “ILS investors used to operating in jurisdictions such as Bermuda will need to get to grips with what London has to offer,”

“A key sticking point is likely to be the speed-to-market facilitated by the efficiency of regulatory approvals; if London can genuinely compete with the established ILS markets in this space then the sky is the limit for the UK to become a hub for ILS business.”